Objection of Xinuos, Inc. To Order Approving The Settlement and Release Agreement by and Between The Trustee and IBM

Case 07-11337-BLS Doc 1509 Filed 09/09/21 Page 1 of 40
IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE
In re: Chapter 7
TSG GROUP, INC., et al. Case No. 07-11337 (BLS)
Debtors. Hearing Date: 9/22/21 at 1:00 p.m. (ET)

Objections Due: 9/9/21 at 4:00 p.m. (ET)
OBJECTION OF XINUOS, INC., TO THE MOTION OF CHAPTER 7 TRUSTEE FOR

ENTRY OF AN ORDER APPROVING THE SETTLEMENT AND RELEASE
AGREEMENT BY AND BETWEEN THE TRUSTEE AND INTERNATIONAL
BUSINESS MACHINES CORPORATION
Xinuos, Inc., (“Xinuos”) files this Objection to the Motion of Chapter 7 Trustee Pursuant
to Fed. R. Bankr. P. 9019 for Entry of an Order Approving the Settlement and Release Agreement
by and Between the Trustee and International Business Machines Corporation. See D.I. 1501 (the
“Motion”). In support of this Objection, Xinuos respectfully represents as follows:
PRELIMINARY STATEMENT
The Trustee is attempting to settle significant claims by TSG Group, Inc. (“TSG”),
formerly known as The SCO Group, Inc. (“SCO”) against International Business Machines Corp.
(“IBM”) in a manner that risks prejudicing Xinuos’ rights. The pending claims in TSG’s lawsuit
against IBM are the only remaining assets held by the estate of TSG and TSG Operations, Inc.
(collectively, the “Debtors”).1 This is because Xinuos (f/k/a UnXis, Inc.) acquired the entirety of
the SCO business, including the UnixWare and OpenServer products, and certain copyright assets
from the bankruptcy estate in 2011. See Declaration of Sean Snyder, Xinuos’ CEO (“Snyder
1
When describing historical events, including the negotiation of the Asset Purchase Agreement
with Xinuos, Xinuos refers to “SCO.” Because Xinuos acquired SCO’s entire business, including
the SCO-brand, out of this bankruptcy proceeding, except for the “Excluded Assets” (discussed
herein), the counterparty to the Asset Purchase Agreement, the Debtors in this proceeding, and the
plaintiff in the pending IBM-related litigation were renamed and are now referred to as “TSG.”
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Decl.”) ¶ 21. A decade later, Xinuos has now brought a federal lawsuit against IBM for
infringement of the acquired copyrights and for injury caused by IBM’s and Red Hat’s violations
of the federal antitrust and local competition laws. That lawsuit is currently pending.
Given the breadth of the releases in the proposed Settlement and Release Agreement (the
“Proposed Settlement Agreement”) between the Trustee and IBM, Xinuos is concerned that the
Trustee is improperly attempting to extend releases that would purport to encompass Xinuos’
claims against IBM and Red Hat. This Objection is directed at ensuring that the Trustee is not
purporting to release or settle the foregoing claims, held solely by Xinuos, and seeks a judicial
declaration that the Proposed Settlement Agreement does not and cannot release such claims as a
matter of law.
The Proposed Settlement Agreement states in section 3.1 that the Trustee releases IBM
from “any and all claims,” including “causes of action and other legal or equitable rights and
remedies relating to (1) all rights and interests in all litigation claims pending or that may be
asserted in the future against IBM and Red Hat, and (2) any allegations that Linux violates SCO’s
Unix or Unixware intellectual property, contract or other rights.” D.I. 1501-2 at 10.
Xinuos objects to this language to the extent that it purports to release IBM or Red Hat
from Xinuos’ claims. The language is broad enough to improperly suggest that it releases claims
that the Debtors do not own or otherwise have a right to sue on. Specifically, the language could
improperly suggest the release of two categories of claims held solely by Xinuos, some of which
were acquired through the January 19, 2011 Asset Purchase Agreement by and between The SCO
Group, Inc., SCO Operations, Inc., and UnXis, Inc. (the “Asset Purchase Agreement” or “APA”).
See D.I. 1216-1:
 First, section 3.1 contains language that could improperly suggest release of
litigation claims pending or that may be asserted in the future against IBM
relating to copyrights that the Trustee sold to Xinuos through the Asset
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Purchase Agreement (the “Post-1995 Copyright Claims”)
 Second, section 3.1 contains language that could improperly suggest release of
litigation claims pending or that may be asserted in the future by Xinuos against
IBM or Red Hat relating to unfair and anticompetitive business practices by
IBM and Red Hat that cause injury to Xinuos (the “Competition Claims”)
Xinuos has notified the Trustee that it opposes any attempts to undermine Xinuos’ rights
to pursue these claims. See Declaration of Gabriel M. Ramsey (“Ramsey Decl.”) ¶ 3. Moreover,
both the Trustee and IBM know that Xinuos has filed a suit in the District Court for the U.S. Virgin
Islands against IBM and Red Hat, and that this suit raises the Post-1995 Copyright Claims and
Competition Claims. See id. ¶ 4. See also Xinuos, Inc. v. International Business Machines
Corporation, et al., Case No. 3:21-cv-00031 (D.V.I.) (the “Virgin Islands Litigation”).
Despite all of this, the Trustee and IBM have presented a Proposed Settlement Agreement
with language that could be read to improperly purport to usurp Xinuos’ rights. It is not difficult
to understand why they have done this. The Trustee wants to close this decade-long bankruptcy
action and IBM wants to prevent Xinuos from bringing its claims in the Virgin Islands Litigation.
But as a matter of contract and as a matter of law, Xinuos is the only party that can assert
or resolve the Post-1995 Copyright Claims involving the copyrights that were acquired by Xinuos
and Xinuos is the only party that can assert or resolve the Competition Claims involving
competitive injury to Xinuos after it was formed and acquired the SCO business and products.
For these reasons, and the reasons stated below, Xinuos respectfully requests that the
Motion be denied and that the Court declare that any proposed settlement between the Debtors and
IBM cannot encompass these claims or otherwise impair Xinuos’ rights.
BACKGROUND FACTS
The UNIX Operating System
1. In the 1970’s, AT&T developed the computer operating system known as UNIX.
See Snyder Decl. ¶ 4. UNIX was (and remains) highly valuable to large enterprise customers due
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to its reliability and scalability. Id.
2. Many software distribution vendors entered into licensing agreements with AT&T
to use UNIX in their own proprietary operating systems. Id. ¶ 5. For example, IBM licensed
UNIX from AT&T and then wrote further UNIX code for its AIX operating system. Id. Though
AT&T owned UNIX, IBM owned the new UNIX source code that it developed on top of it.
3. In or around 1993, AT&T sold all right, title, and interest in UNIX to Novell, Inc.
(“Novell”). Id. ¶ 6. This sale included all right, title, and interest in any UNIX licensing
agreements. Id. Novell developed a UNIX operating system product known as UnixWare. Id.
4. On or about September 19, 1995, SCO entered into an asset purchase agreement
with Novell, acquiring UNIX and UnixWare products, source code, and business (the “Novell
Agreement”). Id. ¶ 7. SCO believed that it also obtained the copyrights that Novell purchased
from AT&T and which Novell otherwise created prior to the date of the Novell Agreement. Id.
5. After September 19, 1995, SCO continuously wrote or had written new source code
adding improvements and functionality to the UnixWare product. Id. ¶ 15. SCO’s “Post-1995”
developments were incorporated into the company’s proprietary UnixWare products. Id. At all
points prior to and after the Novell Agreement, SCO had also separately developed its own
proprietary OpenServer operating system product, also based on UNIX, but which was not
impacted by the Novell Agreement in any way. Due in large part to SCO’s high-quality operating
system products, including the Post-1995 developments to the UnixWare source code, these
products were highly valuable and made SCO very successful. Id.
6. Some of SCO’s Post-1995 improvements occurred in connection with a joint
initiative between SCO and IBM known as “Project Monterey.” Id. ¶ 16. For example, and without
limitation, SCO developed “cross-architecture” functionality in connection with Project Monterey.
Id. The cross-architecture functionality makes it much easier for enterprise users to transition
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software applications from 32-bit environments to higher-powered 64-bit environments. Id.
7. Project Monterey began in October 1998. Id. However, IBM withdrew from
Project Monterey in 2001 before the work was completed. Id.
The Utah Litigation – Pre-Novell Litigation Resolution
8. In 2003, SCO sued IBM. See SCO Grp. v. Int’l Bus. Machines Corp., Case No.
2:03-cv-00294 (D. Utah) (the “Utah Litigation”). Three groups of allegations from the operative
complaint (the Second Amended Complaint) are relevant for present purposes:
9. First, SCO alleged that IBM breached UNIX licenses that it owned. See Utah
Litigation, D.I. 108 (Second Amended Complaint) ¶¶ 110-172. SCO argued at this time that it had
purchased all right, title, and interest in UNIX from Novell, including all right, title, and interest
in any UNIX licenses. SCO alleged that IBM had improperly and secretly used the pre-September
19, 1995 UNIX code in an open source operating system called Linux, and therefore had breached
the UNIX licenses that IBM had entered into with AT&T.
10. Second, SCO alleged that IBM infringed UNIX copyrights which it believed that it
had acquired from Novell, namely the copyrights in the pre-September 19, 1995 code obtained
from Novell. Id. ¶¶ 173-180. This copyright infringement theory was based on the exact same
facts as the license breach theory. See e.g. id. ¶ 179 (“IBM’s breaches of the [AT&T UNIX
licenses] and its post-termination actions have infringed, have induced infringement of, and have
contributed to the infringement of, copyright registrations of SCO and its predecessors”).
11. Third, SCO alleged that IBM unfairly competed with SCO by misrepresenting its
intentions to SCO regarding Project Monterey and through infringement of the pre-September 19,
1995 code, engaging in a course of conduct designed to destroy SCO’s ability to commercialize
the UNIX products and business that it acquired from Novell. Id. ¶¶ 53-57, 181-188. SCO argued
here that IBM coaxed and persuaded SCO to enter Project Monterey without any actual intention
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to complete the work, and solely to stall SCO’s own operating system development efforts, to harm
SCO’s ability to further the UNIX products and business acquired from Novell, to harm SCO’s
products that were doing much better in the market than IBM’s products, and to secretly benefit
the Linux operating system ecosystem generally. Id.
The Novell Litigation
12. While the Utah Litigation was still underway, in 2004, SCO initiated a separate suit
against Novell. See SCO Group v. Novell, Inc., Case No. 2:04-cv-00139 (D. Utah) (the “Novell
Litigation”). For SCO, the object of this suit was to establish, by judicial decree, that, through the
Novell Agreement, it received all right, title, and interest in all of the UNIX and UnixWare code
and copyrights that had been developed prior to September 19, 1995 by Novell or AT&T. See
Novell Litigation, D.I. 96 (Second Amended Complaint) ¶¶ 89-95.
13. After six years of litigation, it turns out that SCO was mistaken about whether the
copyrights in the pre-September 19, 1995 UNIX and UnixWare code was actually conveyed to
SCO. In March 2010, after a two-week trial, the jury returned a verdict that SCO did not obtain
any ownership interest in the pre-September 19, 1995 UNIX and UnixWare copyrights through
the Novell Agreement, and instead only obtained a license to use UNIX and develop its own
proprietary UNIX-based technology going forward. See Novell Litigation, D.I. 877 (Denying
Motion for Judgment as a Matter of law); 878 (Final Judgment).
14. But this did not mean SCO owned no assets. Indeed, the Court in the Novell
Litigation expressly noted after the trial that “it was undisputed that SCO would own any newly
developed code and could obtain copyrights to protect that code.” D.I. 877 at 7.
15. In other words, the Court in the Novell Litigation recognized in 2010 that SCO
owned the Post-1995 code developments in UnixWare and associated copyrights, despite the
otherwise negative result for SCO.
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The Utah Litigation – Post-Novell Litigation Resolution
16. The outcome in the Novell Litigation substantially impacted the Utah Litigation.
Once final judgment in the Novell Litigation was entered, the Court in the Utah Litigation held
that “SCO is bound by, and may not here re-litigate, the rulings in the Novell Judgment that Novell
(not SCO) owns the copyrights to the pre-1996 UNIX source code, and that Novell waived SCO’s
contract claims against IBM for alleged breaches of the licensing agreements pursuant to which
IBM licensed such source code.” Utah Litigation, D.I. 1132 at 2.
17. SCO admitted the same about the Novell Litigation’s impact on the Utah Litigation.
On June 24, 2013, it stated that its “copyright infringement claim against IBM . . . is foreclosed
and may be dismissed on the basis of the Novell judgment that Novell owns the copyrights to pre-
1996 UNIX source code.” See id. D.I. 1119 at 3. Notably, in the same filing, SCO lists “[c]laims
unaffected by the Novell Judgment,” and the list does not mention a copyright or contract breach
claim, or any part of such claim. Id.
18. And IBM also agreed that the scope of the copyright infringement claim in the Utah
Litigation was exactly the same as the scope of the copyright ownership question in the Novell
Litigation – i.e., covering only the code at issue under the Novell Agreement from prior to
September 19, 1995 (the date of the Novell Agreement). Earlier on in the Utah Litigation, IBM
moved to make clear that its counterclaim for a declaration of non-infringement only covered the
UNIX code that was at issue in the Novell Agreement and not any additional code. See id. D.I.
405 (IBM’s Motion for Entry of Order Limiting Scope of IBM’s Ninth Counterclaim, stating that
“[i]n asserting its Ninth Counterclaim, IBM intended to seek only a declaration that because IBM
has not breached IBM’s license agreements with AT&T and SCO’s purported termination of those
licenses is invalid, IBM’s continued distribution of AIX . . . does not infringe SCO’s alleged
copyrights”). The District Court affirmed this ruling. See id. D.I. 471 (Order Limiting Scope of
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IBM’s Ninth Counterclaim “to seeking a declaration that IBM has not infringed SCO’s alleged
copyrights based on alleged breaches of license agreements with AT&T and SCO’s purported
termination of these licenses.”).
19. In other words, because – based on the outcome in the Novell Litigation – SCO did
not own the copyrights in the UNIX and UnixWare code acquired from Novell, or the
accompanying UNIX licenses, SCO lacked a basis to bring a contract breach claim or a copyright
infringement claim. The Court in the Utah Litigation, SCO, and IBM all recognized this. The
copyrights at issue in the Novell Litigation were co-extensive with the copyrights at issue in the
Utah Litigation, so the dispositive outcome against SCO in the Novell Litigation left nothing left
to litigate in the Utah Litigation concerning the contract breach and copyright infringement claims.
Those two sets of allegations (i.e., groups 1 and 2 from ¶¶ 9 and 10 above) were completely gone.
20. But group three – the allegation that IBM misled SCO and unfairly impeded the
value of the UNIX business that SCO acquired from Novell by contributing the pre-September 19,
1995 code to Linux – survived. After several more years of litigation and a summary judgment
ruling from the District Court in favor of IBM, the Tenth Circuit held that this unfair competition
cause of action survived. See SCO Group, Inc. v. Int’l Bus. Machines Corp., 879 F.3d 1062, 1075-
81 (10th Cir. 2018). The District Court was thus reversed on this basis. Id. at 1086.
21. Thus, all that remains now in the Utah Litigation is a trial on the unfair competition
claim. The Utah Litigation is the dispute that the Proposed Settlement Agreement would settle.
Ancillary Actions Involving Red Hat And SUSE
22. In 2003, contemporaneously with the Utah Litigation, Red Hat filed a lawsuit
against SCO, seeking a declaration that Red Hat’s Linux products had not violated the pre-
September 19, 1995 copyrights at issue in the Utah Litigation. See Red Hat, Inc. v. The SCO
Group, Inc., Case No. 1:03-cv-00772 (D. Del.). In 2004, this Court stayed this case pending
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resolution of Utah Litigation. Id., D.I. 34. The Red Hat case was closed in 2007 pending resolution
of SCO’s bankruptcy petition. Id., D.I. 72.
23. In 2006, Novell’s SUSE division filed a request for arbitration with the Secretariat
of the International Chamber of Commerce’s International Court of Arbitration in Paris, France.
See ICC Case No. 14320/FM, Styled SUSE Linux GmbH (Germany) v. The SCO Group, Inc.
(USA). This arbitration was in response to SCO’s allegation in the Novell Litigation that Novell’s
SUSE Linux products violated the pre-September 19, 1995 copyrights at issue in both the Novell
Litigation and the Utah Litigation. See Novell Litigation, D.I. 139 (describing substance of the
arbitration). The arbitration sought a declaration that SUSE’s Linux products had not violated
those copyrights. Id. In 2007, this Court issued an order enforcing the automatic stay of the SUSE
arbitration pending resolution of SCO’s bankruptcy petition. See D.I. 204.
The Present Bankruptcy Action – Introduction
24. While both the Utah Litigation and Novell Litigation were still underway, SCO
filed for Chapter 11 bankruptcy. See D.I. 1. Edward N. Cahn was appointed as the Chapter 11
Trustee by the United States Trustee on August 25, 2009, and this Court approved the appointment
on the same day. D.I. 898, 899, 900. Upon conversion of these cases to cases under Chapter 7,
Mr. Cahn was appointed as Chapter 7 Trustee and remains in that position. See D.I. 1439, 1443.
25. SCO apparently thought that, if there were favorable outcomes in the Novell
Litigation and then the Utah Litigation, SCO could again become solvent and operational on the
same terms as before filing for Chapter 11 bankruptcy. See e.g., D.I. 1249 (Hearing to Approve
the Asset Purchase Agreement) (where counsel for the Trustee stated that “[t]he Trustee and his
professionals were aware that the outcome of a jury trial would have a material effect on the
valuation of the debtors’ software business assets.”); see also Snyder Decl. ¶ 18.
26. However, after the jury verdict in the Novell Litigation, counsel for the Trustee
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stated to this Court that an asset purchase sale was “really the next logical step for these estates.”
D.I. 1164, 6:14-15 (Hearing on Request to Auction Office Substantially All of SCO’s Assets).
27. A process took place to identify the best offer. See D.I. 1249, 17:5-18:21 (Counsel
for Trustee describing the bid process). Xinuos was chosen as the buyer of SCO’s business assets.
The Present Bankruptcy Action – The Asset Purchase Agreement
28. The meeting of the minds between the Trustee and Xinuos on the scope and effect
of the asset sale was memorialized in the Asset Purchase Agreement. See D.I. 1216-1. For present
purposes, the APA has four material parts.
29. First, it defines the “Acquired Assets” sold from SCO to Xinuos in section 2.1
and makes clear that “Acquired Assets” include all Post-1995 copyrights and the entire
business, products, and operations of SCO, the right to all royalties and revenue from those
assets, and the right to all claims arising from those assets. See id., § 2.1. In relevant part, the
Asset Purchase Agreement states that Xinuos:
shall, as of the Closing Date, acquire and purchase, free and clear of any and all
Encumbrances and Retained Obligations, all of Seller’s right, title, and interest in
and to any and all of the assets of the Business2, except for the Excluded Assets set
forth in Schedule 2.1(c) hereof (the “Acquired Assets”), including but not limited
to, the following:
(i) All of Seller’s assets (tangible or intangible), including those assets set forth on
Schedule 2.1(a), all Intellectual Property3, including all copyrights developed after
1995 . . .
(vi) All rights and claims of Seller against any third parties, directly arising from or
directly relating to the Acquired Assets (which, for the avoidance of doubt, shall
2
The APA defines Business follows: “Seller provides UNIX® system software products and
related services (together with the business and operations of Seller relating thereto and the
goodwill appurtenant to such business and assets, and the furnishing of services in connection
therewith, the “Business”).” D.I. 1216-1, § A (recitals).
3
The APA defines Intellectual Property to include “all . . . registered and unregistered . . .
copyrights . . . proprietary information, technology, original works of authorship (including
computer software) and similar rights to any of the foregoing around the world, all applications
for any of the foregoing, and the right to prosecute, enforce, obtain damages relating to, settle or
release any past, present, or future infringement thereof.” D.I. 1216-1, § 1.34.
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not include any rights and claims of Seller against any third parties, directly arising
from or directly related to the Excluded Assets, any rights and claims by Seller
against Buyer relating to this Agreement or any agreement entered into pursuant
hereto, or any rights, claims or causes of action related to Novell, Inc., International
Business Machines Corporation, Red Hat, Inc. and SUSE Linux GmbH or other
similar claims).
Id. § 2.1(a)(i), (vi).
30. The Acquired Assets unambiguously include all of the Post-1995 proprietary
developments that SCO made to the UNIX operating system technology and any other intellectual
property created by SCO. This includes numerous releases of the UnixWare and OpenServer
products, and all Post-1995 code developments whether embodied in a released product or not,
and all registered and unregistered copyrights and exclusive rights associated with the foregoing.
See D.I. 1216-1, § 2.1 and Schedule 2.1(a) (pages 57-63 of the docket entry). The parties further
executed a separate Intellectual Property Rights Assignment formally assigning all such exclusive
rights under the Copyright Act to Xinuos. See Snyder Decl., ¶ 23. Xinuos also acquired the sole
right to receive royalties and licensing fees flowing from those exclusive rights under the
Copyright Act. D.I. 1216-1, § 1.34 (assigning to Xinuos sole and exclusive rights to “prosecute,
enforce, obtain damages relating to, settle or release any past, present, or future infringement” of
the Post-1995 copyrights, as part of the assigned intellectual property).
31. The parties understood this language to mean that (1) Xinuos was purchasing all of
the Acquired Assets but none of the Excluded Assets; (2) the Acquired Assets include all of SCO’s
intellectual property, which expressly encompasses “all copyrights developed after 1995” and the
sole and exclusive right to receive royalties and licensing fees from those copyrights; (3) the
Acquired Assets include any legal or equitable claims “against any third parties, directly arising
from or directly relating to the Acquired Assets”; and (4) these claims do not include “for the
avoidance of doubt” certain claims of SCO against third parties and Xinuos, and certain claims
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against Novell, IBM, Red Hat, Inc., and SUSE (herein, the “Avoidance of Doubt” provision). See
Snyder Decl. ¶ 29.
32. Second, the APA identifies what are the “Excluded Assets” in Schedule 2.1(c),
which are limited to SCO’s operative claims against IBM and others, and do not include
claims to assert the post-September 19, 1995 copyrights or claims that accrued to Xinuos
after the transaction. See id., Schedule 2.1(c). For present purposes, only sub-provisions (viii)
and (ix) matter. Sub-provision (viii) states that the Excluded Assets include “all rights of Seller in
the Licensed Properties” (discussed more fully below). Id. Sub-provision (ix) states that the
Excluded Assets include the following:
all of Seller’s claims, causes of action and other legal or equitable rights and
remedies (A) against Buyer with respect to the transactions contemplated by this
Agreement and (B) relating to all rights and interests in all litigation claims pending
or that may be asserted in the future, against International Business Machines
Corporation, Novell, Inc., SUSE Linux GmbH or others, and (C) relating to every
claim of any nature whatsoever, known or unknown that has been or may be
asserted against RedHat, Inc. or others relating to or arising from all licensing,
covenant not to sue rights, releases or other claims relating to any allegations that
Linux violates SCO’s Unix or UnixWare intellectual property, contract or other
rights;
Id. The parties understood this sub-provision to protect SCO’s ability to seek vindication for any
breach of the APA by Xinuos in part (A), to permit SCO to continue to litigate the operative
complaints in the Utah Litigation, the Novell Litigation and the ancillary Red Hat and SUSE
actions in part (B), and to permit SCO to pursue any claims that Linux violates SCO’s intellectual
property, contract or other rights in part (C). See Snyder Decl. ¶ 28.
33. The parties also understood that the Avoidance of Doubt provision was framed as
“for avoidance of doubt” (as opposed to as a wholly separate and distinct section of the APA)
intentionally to reflect the foregoing Excluded Assets. See id. ¶ 29.
34. The Avoidance of Doubt provision is only meant to clarify what the legal and
equitable claims that Xinuos purchased do not encompass based on preexisting understandings
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about the asset sale and the provisions in the APA governing the Excluded Assets. See id. The
term must be interpreted in that manner.4 See Rexam Inc. v. Berry Plastics Corp., 2015 Del. Ch.
LEXIS 297, at *7 (Del. Ch. Dec. 3, 2015) (“[A]s a matter of law” the Court must “select the
interpretation that better comports with the remaining contents of the document or gives effect to
all the words in dispute.”) (quotation omitted) For example, consistent with the Excluded Assets
definition, the Avoidance of Doubt provision clarifies that the claims Xinuos purchased do not
encompass any claims that SCO has against third-parties related to the Excluded Assets or the
particular claims of SCO against Novell, IBM, Red Hat, and SUSE, all involving the pre-
September 19, 1995 copyrights, which SCO was in the process of litigating against such parties at
that very time in the Utah Litigation, the Novell Litigation and the Red Hat and SUSE actions.
35. The background against which these terms were negotiated was that the jury verdict
and judgment had been entered in the Novell Litigation, but SCO had not exhausted its appeal of
the issue of whether SCO had acquired the pre-September 19, 1995 copyrights from Novell. See
Snyder Decl. ¶¶ 24-25. Indeed, the APA was entered into as of January 19, 2011 and the Court of
Appeals did not finally conclude that Novell owned that material until August 30, 2011. See SCO
Group, Inc. v. Novell, Inc., 439 F. App’x 688, 691 (10th Cir. 2011). In other words, the entire
purpose and meaning of these provisions was that SCO would retain the right to pursue its claims
regarding the pre-September 19, 1995 code and copyrights should it be successful on appeal and
retained those claims and rights as “Excluded Assets.” See Snyder Decl. ¶¶ 24-32.
36. Importantly, the Excluded Assets do not include any of the Post-1995 copyrights,
any exclusive right under the Copyright Act in such copyrights or any exclusive right to receive
royalties or licensing fees under any such constituent rights under the Copyright Act. See Schedule
4
The APA states that the agreement is made under and shall be construed and enforced in
accordance with the laws of the State of Delaware. See D.I. 1216-1, § 10.3.
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2.1(c). This is consistent with the fact that, at the same time and through the same legal instrument,
SCO transferred the post-September 19, 1995 code and copyrights to Xinuos, as the “Acquired
Assets,” and all rights to assert those copyrights. The parties understood this, and this was Xinuos’
and the Trustee’s intent in framing the agreement in this way. See Snyder Decl. ¶¶ 24-32.
37. Third, the APA establishes, in section 2.2, a sublicense by SCO to Xinuos to
use the pre-September 19, 1995 copyrighted code owned by Novell and a mere non-exclusive
license back from Xinuos to SCO to “use” the post-September 19, 1995 copyrighted code
that was transferred to Xinuos. D.I. 1216-1, § 2.2. The first part of section 2.2 states that SCO
grants Xinuos “a perpetual, non-exclusive, royalty-free sublicense to use the Licensed Properties.”
Id. The Licensed Properties are defined in § 1.40 to explicitly refer to the UNIX code that SCO
mistakenly thought it owned but that—as a result of the jury verdict in the Novell Litigation—it
turns out SCO only had a license to use. Id., § 1.40.5 Accordingly, while SCO had no entitlement
or ability to sell these Novell assets to Xinuos, SCO did have the right to sublicense the Novell
assets to Xinuos. The sublicense was necessary because Xinuos needed access to the legacy UNIX
code to ensure that the proprietary post-1995 developments that it did acquire could function
properly and it needed the right to distribute products based on such code to carry out the business.
38. The second part of section 2.2 states that Xinuos grants SCO “a perpetual, non-
exclusive, royalty-free license to use the Intellectual Property transferred under this Agreement
solely in connection with the exercise of its rights and performance of its obligations with respect
to the Excluded Assets.” Id., § 2.2 (emphasis added). Accordingly, this license granted SCO a
5
Section 1.40 states: “‘Licensed Properties’ means all copyrights and other Intellectual Property
used by Seller in the Business as currently conducted that Seller does not own, including the
copyrights owned by Novell, Inc., as determined in the Memorandum Decision and Order Denying
SCO’s Renewed Motion for Judgment as a Matter of Law, or in the Alternative, for a New Trial
and by the Findings of Fact and Conclusions of Law of the United States District Court of Utah
on June 10, 2010.”
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“non-exclusive . . . license to use” the Post-1995 developments that it had just assigned to Xinuos
“solely in connection with” its rights regarding the Excluded Assets. Id. In other words, while
Xinuos was willing to permit SCO to “use” the post-September 19, 1995 copyrighted code in the
context of the Utah Litigation, Novell Litigation and ancillary Red Hat and SUSE actions—for
example, as evidence in those cases of SCO’s market success—no further rights were extended by
Xinuos. Id.6 While the parties clearly knew how to use the word “sublicense” (indeed they had
used that term in the previous sentence), nowhere did Xinuos grant back to SCO the right to
“sublicense” or otherwise “license” the post-September 19, 1995 copyrights or code to any other
party, IBM or otherwise. Id. Thus, the Debtors were not granted and do not possess any right to
license or sublicense the post-September 19, 1995 copyrights or code.
39. Fourth, the APA includes a severability clause that states “[i]f any provision of
this Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard thereto.” Id., § 10.9.
The Present Bankruptcy Action – The Hearing On The Asset Purchase Agreement
40. On March 2, 2011, this Court held a hearing on whether to approve the Asset
Purchase Agreement. See D.I. 1249. A few statements from that hearing are worth highlighting.
41. First, during the cross-examination of Bruce Comer, the scope of the asset sale was
made clear:7
Q. Now, I’m just curious. Well, let me ask you this question a little bit differently.
On a kind of general level, you’re intimately familiar with the transaction, right?
A. Yes.
Q. Okay, what’s the debtor going to be left with, in general, once this transaction
6
Notably, a vestigial footnote to the Xinuos-to-SCO License indicates that SCO’s purpose was to
support maintenance of the pending claims: “Seller [i.e., SCO] to confirm with litigation counsel
that license-back of copyright is sufficient to maintain litigation.” D.I. 1216, § 2.2, n. 1.
7
Bruce Comer was the founder and managing director of Ocean Park Advisors, LLC, which was
retained by the Trustee as a financial advisor. See D.I. 1249, 19:6-13. Counsel for the Trustee
stated that Mr. Comer was “familiar with debtors’ day-to-day operations, business and financial
affairs.” Id., 19:14-15.
{01722159;v1 } 15
is done?
A. We’re going to be le – the purchase price, the 600,000 dollars, the accounts
receivable, which will be collected by the buyer. That value, as of today, is about
680,000 dollars, actually. The cash balance in the company after the cure amounts
– the net amounts of the cure are paid, and so that’s the – that’s what will be left
over.
Q. Any intellectual property?
A. No. That’s going to the buyer.
Q. Any employees?
A. No, because the buyer’s taking all the employees.
Q. So, in essence, the debtors will be out of business when this transactions closes,
except for the purposes of winding up their estates?
A. That is correct. The operating software business, that is correct. There will be
no operating assets left.
Id. 34:5-25. In other words, for purposes of the operating system business, the intent of the APA
was to place Xinuos completely and wholly in SCO’s shoes. For SCO, after the APA “there will
be no operating assets left.” Id., 34:24-25.
42. Second, during the direct examination of William Broderick by counsel for the
Trustee, the urgency of the APA and a sale was explained:8
Q. OK, if SCO is unable to transfer these assets to [Xinuos], what impact will there
be on its customers?
A. If SCO goes out of business, the impact is going to be pretty disastrous
worldwide. This is an operating system that’s used worldwide. We’re not selling
a lot of product right now, but we have a lot of support relationships in place. The
people – the installed base that’s using UNIX needs us to support them. The
distributors that distribute our product do a lot of support of their customers, but we
have support agreements, we support those distributors. If those distributors can
no longer support their customers, then all those people I described before, small,
medium, large corporations, retail outlets, government agencies, they’re up a creek
for support. If something happens to their operating system, they’ve got nobody to
turn to.
Id., 65:13-25.
43. Thus, Mr. Broderick made clear that unless the entire business, products, assets,
and associated intellectual property and rights were transferred to Xinuos, there would be a
8
William Broderick was a SCO contractor who had been an employee at AT&T since 1991,
working on UNIX, and was an employee working on UNIX at Novell as well. See id., 54:6-56:18.
{01722159;v1 } 16
deleterious impact on a substantial ecosystem of customers and partners and their operations.
Indeed, the intent of the parties to the agreement was consistent with this position – that after the
APA, Xinuos would take over all SCO operations and for all intents and purposes stand in the
shoes of SCO for worldwide business activities. See Snyder Decl. ¶ 27. Thus, Xinuos was
acquiring all rights, including intellectual property rights and rights to pursue its own commercial
interests, sufficient to protect and defend that server operating system ecosystem and the entirety
of the business that it was acquiring. See id.
44. And third, during the redirect examination of Mr. Comer by counsel for the Trustee,
the relationship between the Acquired Assets and Excluded Assets was placed into sharper focus:
Q. There was a question about whether the debtor would be left with any assets,
and you very specifically said there would be no operating assets. You are familiar
with the litigation that’s been going on with Novell, correct?
A. That’s correct.
Q. And that’s on appeal right now?
A. Um-hum.
Q. So the debtor continues to have some interest in that litigation?
A. Absolutely. And there may be some holding companies and other assets, but
the operations – I guess what I was referring to was the customer-facing operations
and assets will go to the buyer.
Q. Okay, and are you aware –
A. The litigation claims – or, the claims were all – were one of the excluded assets
in the transaction.
Id. 38:17-39:7. In other words, though SCO would be functionally a shell company for operational
purposes, it did retain sufficient assets to pursue the pending litigations, in particular the Utah
Litigation as framed in the Second Amended Complaint.
45. All of this testimony reinforces and is consistent with the understanding of the
parties to the APA. Through the APA, SCO sold all of the Post-1995 developments and all of its
rights in and claims regarding the ongoing business and operations of SCO to Xinuos so that
Xinuos could protect the stability of that worldwide global server operating system market. And
after that sale, SCO was left solely with assets sufficient to litigate the claims in the Second
{01722159;v1 } 17
Amended Complaint in the Utah Litigation, the Novell Litigation and the ancillary Red Hat and
SUSE actions (all of which involved the pre-September 19, 1995 copyrights).
46. In light of this and similar testimony, the Court approved the APA. See D.I. 1253.
The Present Bankruptcy Action – Almost No Activity Between 2011 And Today
47. After the APA was approved, almost no substantive activity took place in this
bankruptcy action.
48. The only activity worth mentioning for present purposes is that, on August 16,
2012, the Trustee filed a motion to convert this Chapter 11 case to a case under Chapter 7. See
D.I. 1419. As noted at the hearing to approve the APA, SCO was no longer operational and had
no intellectual property assets. See D.I. 1249, 34:5-25; 38:17-39:10. So formally converting to
Chapter 7 was the appropriate step. See e.g., D.I. 1419 ¶ 9 (noting that conversion from Chapter
11 to 7 is appropriate where there is a “substantial or continuous loss to or diminution of the estate
and absence of a reasonable likelihood of rehabilitation”) (citing 11 U.S.C. § 1112(b)(4)(A)).
49. Notably, as part of this motion, the Trustee stated as follows:
On April 11, 2011, the Debtors sold and conveyed to [Xinuos] the UNIX® system
software product and related services business. There are no other assets in the
Debtors’ estates other than certain unfair competition and tortious interference
claims asserted by the Debtors’ estates against International Business Machines
Corporation (“IBM”) in an action [ ] currently pending in the District Court for the
District of Utah [ ].
D.I. 1419, at 1-2.
50. This representation by the Trustee simply further confirmed what had been made
express through the APA and during the hearing on the APA: Xinuos owned all of the Post-1995
developments and all rights in and claims regarding the ongoing business and operations acquired
from SCO, and the only assets that SCO owned were those sufficient to allow it to litigate what
remained of the Second Amended Complaint in the Utah Litigation, the Novell Litigation, and the
Red Hat and SUSE actions (all of which involved the pre-September 19, 1995 copyrights).
{01722159;v1 } 18
The Virgin Islands Litigation
51. In 2019, Xinuos discovered that some portion of the Post-1995 proprietary UNIX
developments that SCO developed in connection with Project Monterey and that Xinuos purchased
through the APA were present in IBM’s AIX server operating system products. See Snyder Decl.
¶ 36. After further investigation of these circumstances, Xinuos also discovered that competitors
IBM and Red Hat were engaging in anticompetitive and unfair business practices, including joint
action to divide the market between them and to exclude competitors, including Xinuos, from the
market, and to illegally impair the ability of Xinuos’ existing and new products (particularly the
recent OpenServer 10 product) to compete in the market, as well as monopolization of the market
generally. See id. ¶ 37.
52. Given the need to protect its intellectual property position, to protect the market
from exclusionary practices that harm consumer welfare, to protect its business and products, and
to protect the very same customers, partners, and operating system ecosystem that animated the
purpose of the APA in the first place, Xinuos was forced to initiate litigation in Federal Court
against IBM and Red Hat. See id. ¶ 38. The Complaint in the Virgin Islands Litigation alleges
that IBM infringed the copyrights that it owns in the Post-1995 UNIX and UnixWare
developments, and that Red Hat and IBM took joint action to injure the market and competitors,
including Xinuos, and its customers and partners, in violation of the federal antitrust laws and
Virgin Islands anticompetition and unfair practices laws. Id.
After Nearly A Decade Of Inaction – And Only After Xinuos Initiated The Virgin
Islands Litigation – IBM And The Trustee Reach An Agreement With Overly Broad
Releases
53. Before Xinuos initiated the Virgin Islands Litigation, it appears that there were no
prospects for the Utah Litigation to settle or for this bankruptcy proceeding to ever close. See
generally D.I. 1477-83 (only seven docket entries between Feb. 20, 2013 and Sept. 14, 2020.
{01722159;v1 } 19
There had simply been no action for years and no basis to think the parties would shift their
positions. Id. Financing to take the Utah Litigation to trial was attempted in recent years, but
apparently fell through. See id. 1483-85.
54. Then, suddenly, on August 26, 2021, only a few months after Xinuos commenced
the Virgin Islands Litigation, the Trustee filed the Motion and associated Proposed Settlement
Agreement to which Xinuos now objects. See id. 1501. As described above, the Motion seeks
approval of the Proposed Settlement Agreement, which includes broad releases that could be
improperly read to encompass the Post-1995 Copyright Claims and Competition Claims that
Xinuos filed in the Virgin Islands Litigation.
55. Xinuos is deeply concerned that, having agreed to the mutually understood scope
of the APA approximately a decade ago, now the Trustee is attempting to improperly broaden
what the Debtors retained, in order to attempt to encompass Xinuos’ claims in the Virgin Islands
Litigation. And IBM apparently is driving this attempt, to avoid resolution of the Virgin Islands
Litigation on the merits. This marriage-of-convenience that hopes to leave Xinuos out in the cold
is entirely inappropriate. For the reasons below, as a matter of contract and as a matter of law, the
Trustee cannot release IBM or any other party from Xinuos’ Virgin Islands Litigation claims.
OBJECTION
56. The Motion must be denied because SCO has no right to release IBM or Red Hat
from either the Post-1995 Copyright Claims or the Competition Claims and Xinuos has the sole
and exclusive right to pursue those claims.
The Motion Must Be Denied Because The Proposed Settlement Agreement Contains
Releases That Could Be Improperly Construed To Release IBM From The Post-1995
Copyright Claims
57. There are three separate reasons why the Trustee cannot release IBM from the Post-
1995 Copyright Claims. First, the APA wholly and solely assigns to Xinuos the Post-1995 code,
{01722159;v1 } 20
copyrights, and rights to enforce those copyrights. Second, as a matter of copyright law, the APA
cannot be construed to provide the right to enforce those copyrights to any party other than Xinuos.
Third, Xinuos did not grant any right to the Debtors to license or sublicense those copyrights to
any other party. Each reason is taken in turn.
A. The APA Establishes That Xinuos Alone Owns The Post-1995 Copyrights,
Code Developments, And Rights To Protect These Property Interests—The
Debtors Did Not Retain Any Such Rights Or Interests
1. The Plain Language Of The APA States That Xinuos Alone Owns The
Post-1995 Copyrights And Rights To Exploit And Sue For
Infringement Of The Post-1995 Copyrights
58. The plain language of the APA states that the Post-1995 UNIX and UnixWare
developments and copyrights, and all exclusive rights under those copyrights, were wholly
assigned to Xinuos. See Phillips Home Builders v. Travelers Ins. Co., 700 A.2d 127, 129 (Del.
1997) (“When there is a written contract, the plain language of a contract will be given its plain
meaning.”). This complete assignment includes the right to sue others when the copyrights are
infringed—i.e., the assignment includes the Post-1995 Copyright Claims.
59. The APA establishes this in § 2.1, where it states that the Acquired Assets
transferred to Xinuos include “[a]ll of [SCO’s] assets (tangible or intangible), including those
assets set forth on Schedule 2.1(a), all Intellectual Property, including all copyrights developed
after 1995” as well as “[a]ll rights and claims of Seller against any third parties, directly arising
from or directly relating to the Acquired Assets.” D.I. 1216-1, § 2.1(a). Accordingly, when SCO
sold “[a]ll” of its “assets (tangible or intangible)” to Xinuos, that necessarily included the Post-
1995 Copyright Claims. The plain language assigning the “copyrights developed after 1995” and
associated claims make this clear. An objective, reasonable party reading these terms would
understand the plain language in this way. Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159
(Del. 2010) (“Delaware law adheres to the objective theory of contracts, i.e., a contract’s
{01722159;v1 } 21
construction should be that which would be understood by an objective, reasonable third party.”).
60. Of course, none of the Excluded Assets were sold to Xinuos as part of the APA.
D.I. 1216-1, § 2.1(c). But the Excluded Assets plainly do not include the Post-1995 copyrights,
any rights in those copyrights, or the Post-1995 Copyright Claims.
61. First, the Excluded Assets do not state that SCO retained the Post-1995 copyrights,
any associated exclusive rights under the Copyright Act, any exclusive rights to royalties or
licensing revenue flowing from such rights, or the right to sue on the Post-1995 copyrights that it
had just sold to Xinuos. Given that the Acquired Assets expressly establish that “all copyrights
developed after 1995” are part of the transfer to Xinuos, it follows that if any portion of those same
Post-1995 copyrights, or exclusive rights under the Copyright Act or associated exclusive rights
to royalties or licensing revenues or rights to assert those copyrights were in fact not transferred,
the APA would have made that explicit. It did no such thing. Thus, the only reasonable
construction of the Excluded Assets language is that the Post-1995 copyrights were not “pending”
as part of the Second Amended Complaint in the Utah Litigation or any other litigation and, upon
assigning such copyrights to Xinuos, claims for infringement of such copyrights may not “be
asserted in the future” by SCO. See Mrs. Fields Brand, Inc. v. Interbake Foods, LLC, 2017 Del.
Ch. LEXIS 113, at *51 (Del. Ch. June 26, 2017) (“If the parties had intended [certain matter], it is
reasonable to assume they would have said so . . . They did not, which strongly suggests that they
did not intend to . . . and which is consistent with the commercially logical result . . .”).
62. Second, the Excluded Assets do not somehow implicitly mean that Xinuos’
purchase of the Post-1995 copyrights failed to include a fundamental and exclusive right to protect
and enforce those newly purchased property interests. As explained above, sub-provision (ix) of
the Excluded Assets establish in part (B) that SCO retained the right to continue to litigate the
operative claim in the Utah Litigation, the Novell Litigation and the Red Hat and SUSE disputes
{01722159;v1 } 22
(all involving pre-September 19, 1995 copyrights and code), and establish in part (C) that SCO
retained the right to sue Red Hat for Linux’s infringement of pre-September 19, 1995 UNIX. See
D.I. 1216-1, Schedule 2.1(c)(ix). These provisions do not secretly encompass the much broader
exclusion of Xinuos not being allowed to protect and exclusively control its newly purchased
property. This would be an outstanding and unreasonable construction of the otherwise plain text,
which must be rejected. See In re Northwestern Corp., 313 B.R. 595, 601 (D. Del. Bankr. 2004)
(“An interpretation that leads to an absurd result is disfavored”) (citing Collins & Aikman Corp. v.
Compo Industries, Inc., 1982 Del. Ch. LEXIS 525 (Del. Ch. July 6, 1982)); Axis Reinsurance Co.
v. HLTH Corporation, 993 A.2d 1057, 1063 (Del. 2010) (“[T]he controlling rule of construction
is that where a contract provision lends itself to two interpretations, a court will not adopt the
interpretation that leads to unreasonable results, but instead will adopt the construction that is
reasonable and that harmonizes the affected contract provisions.”).
63. Indeed, this would be particularly unreasonable given that Xinuos was attempting
to avoid precisely the ambiguity that existed between SCO and Novell, see Snyder Decl. ¶ 32, and
that context matters. See City Investing Co. Liquidating Trust v. Continental Casualty Co., 624
A.2d 1191, 1198 (Del. 1993) (“[I]f the words of the agreement can only be known through an
appreciation of the context and circumstances in which they were used a court is not free to
disregard extrinsic evidence of what the parties intended.”). Simply put, the parties agreed to the
clear and exclusive assignment of the Post-1995 copyrights and rights to enforce those rights to
avoid that dispute that SCO encountered with respect to the pre-1995 copyrights.
64. Finally, in case there was any doubt about the meaning of the APA, in 2012 the
Trustee made this clear in his motion to convert the bankruptcy action from Chapter 11 to Chapter
7. See D.I. 1419. In this motion, the Trustee states: “[t]here are no other assets in the Debtors’
estates other than certain unfair competition and tortious interference claims asserted by the
{01722159;v1 } 23
Debtors’ estates against International Business Machines Corporation (“IBM”) in an action [ ]
currently pending in the District Court for the District of Utah [ ].” Id at 1-2 (emphasis added).
65. The Trustee knew in 2012 that the Debtors solely retained the claims needed to
litigate what remained of the Utah Litigation. Id. He cannot now turn around and say that the
estate also retains the Post-1995 copyrights and Post-1995 Copyright Claims assigned to Xinuos.
2. The Intent Of The Parties To The APA Was To Assign Solely To Xinuos
The Post-1995 Copyrights And Rights To Exploit And Sue For
Infringement Of The Post-1995 Copyrights
66. Consistent with the plain text of the APA, the evidence of the intent of the parties
further establishes that the Debtors did not retain the Post-1995 copyrights or rights to enforce the
Post-1995 copyrights. Sean Snyder, Xinuos’ CEO, attests to this. See Snyder Decl. ¶¶ 24-32.
67. There are at least two reasons why the only reasonable conclusion is that the intent
of the parties was to transfer to Xinuos all of the Post-1995 copyrights, including the exclusive
rights under the Copyright Act and associated royalties, and the exclusive right to sue on those
copyrights. To the extent there is a dispute regarding interpretation of the agreement, the extrinsic
evidence of intent demonstrates that this is so. See Harvey v. City of Newark, 2010 Del. Ch. LEXIS
215, at *24-25 (Del. Ch. Oct. 20, 2010) (“complex documents must be read contextually, both in
the sense that specific provisions must be read in context with the entire document, and in the sense
that complex documents typically cannot be rationally understood without an appreciation for the
particular political or business context in which they were adopted.”).
68. First, the whole point of the APA was to allow Xinuos to take over control of SCO’s
server operating system business. The live testimony of Mr. Comer made this clear. See D.I.
1249, 34:5-25 (all of SCO’s intellectual property is “going to the buyer” and that SCO will have
“no operating assets left” after the transfer); 38:17-39:10 (“the customer-facing operations and
assets will go to the buyer”). It is not plausible that the parties intended Xinuos to take complete
{01722159;v1 } 24
control over SCO’s business but to not possess the authority to protect the business’s core
intellectual property from infringement and to exclusively control that intellectual property. This
would be cutting Xinuos at its knees before the business started and such a construction would
make no sense in context. See e.g. Chicago Bridge & Iron Company N.V. v. Westinghouse Electric
Co., 166 A.3d 912 (Del. 2017) (“In giving sensible life to a real-world contract, courts must read
the specific provisions of the contract in light of the entire contract. That is true in all commercial
contexts, but especially so when the contract at issue involves a definitive acquisition agreement
addressing the sale of an entire business.”).
69. This also makes sense given the market context. As Mr. Broderick explained
through live testimony, the APA needed to be approved because businesses around the world
needed maintenance and service support to protect their business-critical server operating systems.
See D.I. 1249, 65:13-25. Xinuos would not have been able to support the server operating system
market if it could not protect its own assets.
70. The Excluded Assets were not inserted into the APA to undermine Xinuos’ ability
to operate the server operating system business. They were included for the perfectly logical
reason to protect SCO’s rights to pursue what remained in the operative complaint in the Utah
Litigation, the Novell Litigation and the ancillary Red Hat and SUSE actions—all involving pre-
September 19, 1995 copyrights and code. This was the case because, as of early 2011 when the
APA was drafted, the final appeal in the Novell Litigation to determine ownership of the pre-1995
code was still ongoing. This is precisely why in 2012—after the Tenth Circuit finally concluded
that Novell, not SCO, owned the pre-September 19, 1995 copyrights and code—the Trustee stated
definitively in his motion to convert to Chapter 7 that “[t]here are no other assets in the Debtors’
estates other than certain unfair competition and tortious interference claims.” D.I. 1419 at 1-2.
71. Second, the license from Xinuos to SCO only makes sense if SCO did not retain
{01722159;v1 } 25
ownership of the UNIX and UnixWare assets, and associated copyrights, which were sold and
assigned to Xinuos through the APA. This license granted SCO a “non-exclusive . . . license to
use” the Post-1995 developments that it had just sold to Xinuos. D.I. 1216-1, § 2.2. If SCO had
already retained ownership of the Post-1995 developments and copyrights, then it simply makes
no sense for SCO to need a license to use these same copyrights. This provision would be a mere
surplusage and such a construction must be rejected. See Veloric v. J.G. Wentworth, Inc., 2014
Del. Ch. LEXIS 178, at *24-25 (Del. Ch. Sept. 18, 2014) (“[The Court] should avoid interpreting
a term in an unreasonable way that would yield an absurd result or that would render other
contractual language superfluous.”).
B. Well-Established Copyright Law Provides That Only The Legal Or Beneficial

Owner Of Exclusive Rights Under The Copyright Act—Xinuos—Can Sue On
That Copyright, And Thus Any Attempt By The Debtors To Retain The Right
To Sue On The Post-1995 Copyrights Would Be Invalid
72. Federal copyright law only allows the legal or beneficial owner of a copyright to
bring a claim on the basis of that copyright’s infringement. Indeed, Section 501(b) of the
Copyright Act clearly defines under what circumstances a party has standing to bring a suit against
infringing parties. For a plaintiff to assert a claim for copyright infringement, it must be (1) the
“legal or beneficial owner of an exclusive right under a copyright” and (2) entitled “to institute an
action for any infringement of that particular right committed while he or she is the owner of it.”
17 U.S.C. § 501(b).
73. Federal Courts across the United States have reaffirmed this principle, holding that
only the owner of copyrights or exclusive rights under the Copyright Act in such copyrights may
file suit related to those copyrights. See e.g., Vianix Del. LLC v. Nuance Communs., Inc., 2009
U.S. Dist. LEXIS 40992, *4-8 (D. Del. May 12, 2009) (only the legal or beneficial owner of
copyrights may file suit on the copyrights); Righthaven LLC v. Hoehn, 716 F.3d 1166, 1169-70
(9th Cir. 2013) (same); Silvers v. Sony Pictures Entm’t, Inc., 402 F.3d 881, 884-87 (9th Cir. 2005)
{01722159;v1 } 26
(“Congress’ explicit listing of who may sue for copyright infringement should be understood as
an exclusion of others from suing for infringement.”); ABKCO Music, Inc. v. Harrisongs Music,
Ltd., 944 F.2d 971, 980 (2d Cir. 1991) (“[T]he Copyright Act does not permit copyright holders to
choose third parties to bring suits on their behalf.”); HyperQuest, Inc. v. N’Site Solutions, Inc., 632
F.3d 377, 381 (7th Cir. 2011) (“[T]he Copyright Act spells out who has enforceable rights under
the statute; someone who does may sue, and someone who does not has failed to state a claim upon
which relief may be granted”); Bourne Co. v. Hunter Country Club, Inc., 990 F.2d 934, 938 (7th
Cir. 1993) (licensing agent may not join infringement suit pursuant to § 501(b)); Viesti Assocs. v.
Pearson Educ., Inc., 2014 U.S. Dist. LEXIS 35939, at *18-21 (D. Colo. Mar. 19, 2014) (“[T]he
weight of authority interprets § 501(b) as authorizing suit only by legal or beneficial owners”).
74. In particular, where the entirety of a copyright is assigned, it is not legally possible
for the assignor, such as Debtors here, to retain a right to sue under the copyright. See e.g., Fathers
& Daughters Nev., LLC v. Lingfu Zhang, 284 F. Supp. 3d 1160, 1170 (D. Or. 2018) (“[T]he Ninth
Circuit has repeatedly held that agreements and assignments cannot convey simply a right to sue,
because a right to sue is not an exclusive right under the Copyright Act . . . If a party cannot transfer
simply a right to sue, the Court finds that a party similarly cannot retain a simple right to sue.”)
(citing DRK Photo v. McGraw-Hill Glob. Educ. Holdings, LLC, 870 F.3d 978, 987-88 (9th Cir.
2017)); see also Crafty Prods. v. Fuqing Sanxing Crafts Co., 839 F. App’x 95, 98 (9th Cir. 2020)
(where agreement transfers all of seller’s assets including copyrights to buyer, seller cannot retain
a “right to sue” on those copyrights).
75. “In order to bring a claim, both legal and beneficial owners must show that they are
the owners of at least one exclusive right set forth in § 106.” Viesti Assocs., 2014 U.S. Dist. LEXIS
35939 at *18-21; Hyperquest, 632 F.3d at 382 (same). In particular, Section 106 of the Copyright
Act defines “exclusive rights” as the rights (1) to reproduce copies of the copyrighted work; (2) to
{01722159;v1 } 27
prepare derivative works based upon the work; (3) to distribute copies of the work, (4) to perform
the work publicly, (5) to display the work publicly, and (6) to perform the work publicly by digital
audio transmission. By contrast, “[t]he right to sue for an accrued claim for infringement is not an
exclusive right under § 106.” Silvers, 402 F.3d at 884.
76. “Legal owners are those with legal title to at least one exclusive right” under the
Copyright Act. Viesti Assocs., 2014 U.S. Dist. LEXIS 35939, at *18-21 (citing Silvers, 402 F.3d
at 886). Here, the Debtors fully assigned to Xinuos the entirety of the Post-1995 copyrights,
including registered and unregistered copyrights encompassing all of the foregoing exclusive
rights under Section 106. The Debtors did not retain any exclusive right to reproduce, prepare
derivative works, distribute, perform, or display any copyrighted work. Thus, Xinuos alone is the
“legal” owner of the Post-1995 copyrights and the Debtors are not the legal owners.
77. “Beneficial owners are those without legal title, but with an interest in royalties or
licensing fees flowing from an exclusive right.” Viesti Assocs., 2014 U.S. Dist. LEXIS 35939, at
*18-21 (citing Silvers, 402 F.3d at 886); SBK Catalogue P’ship v. Orion Pictures Corp., 723 F.
Supp. 1053, 1062 (D.N.J. 1989) (“[T]he definition given to a beneficial owner includes an author
who had parted with legal title to the copyright in exchange for percentage royalties based on sales
or license fees.”) (citation omitted); see also Moran v. London Records, Ltd., 827 F.2d 180, 183
(7th Cir. 1987) (defining beneficial owner as one who has “the right to receive royalties from the
copyright’s exploitation”). Here, the Debtors fully assigned to Xinuos the entirety of the rights to
royalties and licensing fees flowing from the Post-1995 copyrights, including registered and
unregistered copyrights encompassing all of the foregoing exclusive rights under Section 106 of
the Copyright Act. The Debtors did not retain any exclusive right to receive royalties or licensing
fees flowing from one of the right to reproduce, prepare derivative works, distribute, perform,
display or perform any copyrighted work. Thus, Xinuos alone is the “beneficial” owner of the
{01722159;v1 } 28
Post-1995 copyrights and the Debtors are not the beneficial owners.
78. Righthaven is on point. In Righthaven, contractual language purported to provide
a party all rights “to seek redress for past, present, and future infringements of the copyright . . . in
and to the Work” but that same party did not retain ownership of any exclusive right to reproduce,
prepare derivative works or distribute copies of the work. Righthaven, 716 F.3d at 1169-70. Based
on this contractual language, the Ninth Circuit held that because the party did not actually retain
ownership of the copyrights or any exclusive right under the Copyright Act, it had no standing to
sue on those copyrights, notwithstanding the language in the agreement purporting to provide that
party with “all copyrights requisite” to accomplish filing of the suit. Id.
79. The Court should presume that the drafters of the APA intended for the contract to
comply with longstanding and well-established copyright law. See Western Air Lines, Inc. v.
Allegheny Airlines, Inc., 313 A.2d 145, 154 (Del. Ch. 1973) (“Contracts must be written and
construed in light of generally accepted legal principles.”). The Court should thus find that the
APA transferred the power to sue on the Post-1995 copyrights to Xinuos along with the copyrights
and the constituent rights under the Copyright Act, all of which are exclusively held by Xinuos.
80. However, if the Trustee nonetheless argues that the Debtors purport to retain the
right to sue on the Post-1995 copyrights assigned to Xinuos and purport to exclude from the APA
the power for Xinuos to sue on the Post-1995 copyrights that it was assigned, the response must
be—for the reasons above—that such a construction is legally inoperative and unenforceable.
81. Given the severability clause, this outcome would not cause the APA to collapse.
Rather, as this clause states, “[i]f any provision of this Agreement is construed to be invalid, illegal
or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be
enforceable without regard thereto.” D.I. 1216-1, § 10.9. Thus, should the Trustee argue that the
Debtors retained a bare right to sue, which would be a wholly unenforceable term, that term should
{01722159;v1 } 29
be severed and the remainder of the contract enforced. Hildreth v. Castle Dental Centers, Inc.,
939 A.2d 1281, 1283–84 (Del. 2007) (Berger, J.) (“An invalid term of an otherwise valid contract,
if severable, will not defeat the contract.”).
C. The Asset Purchase Agreement Only Grants to the Debtors the Non-Exclusive
Right to “Use” the Post-1995 Copyrights—The Debtors Were Not Extended
Any Right To “License” or “Sublicense” The Copyrights.
82. The only right that the Debtors received regarding the Post-1995 copyrights was a
“non-exclusive, royalty-free license to use the Intellectual Property transferred under this
Agreement solely in connection with the exercise of its rights and performance of its obligations
with respect to the Excluded Assets.” D.I. 1216-1, § 2.2 (emphasis added).
83. Crucially, a non-exclusive license does not confer standing to the Debtors to sue on
the Post-1995 copyrights. See MacLean Assoc., Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc.,
952 F.2d 769, 779 (3d Cir. 1991) (“[A] nonexclusive license does not transfer ownership of the
copyright from the licensor to the licensee.”); Office for Planning & Architecture, Inc. v. City of
Harrisburg, 2020 U.S. Dist. LEXIS 219928, at *13 (M.D. Pa. Nov. 24, 2020) (“a nonexclusive
license is not the equivalent of a transfer of ownership” and does not constitute “legal or beneficial”
copyright ownership); Granite Music Corp. v. Center St. Smoke House, Inc., 786 F. Supp. 2d 716,
724 (W.D.N.Y. 2011) (same); Viesti Assocs., 2014 U.S. Dist. LEXIS 35939, at *18-21 (same);
HyperQuest, 632 F.3d at 382 (same). As a consequence, the Debtors also cannot release any claim
for infringement of the Post-1995 copyrights. See e.g. Viesti Assocs. v. Pearson Educ., Inc., 2014
U.S. Dist. LEXIS 35942, at *3 (D. Colo. Mar. 19, 2014) (party that was not legal or beneficial
owner of copyright had not right “to initiate and settle lawsuits”).
84. In addition, given that the Post-1995 copyrights are indisputably not part of the
Excluded Assets, it cannot be the case that the Debtors retained a license to resolve litigation claims
regarding the Post-1995 works by licensing other works, as section 2.2 only extends the license
{01722159;v1 } 30
regarding “rights and . . . obligations with respect to the Excluded Assets.” D.I. 1216-1, § 2.2.
Thus, section 2.2 cannot be construed to include any right by the Debtors to extend licenses or
sublicenses to the Post-1995 copyrights. This is the only reasonable interpretation consistent with
the APA’s overall meaning and the context in which it was drafted. See Rexam Inc., 2015 Del.
Ch. LEXIS 297 at *7 (Court must “select the interpretation that better comports with the remaining
contents of the document”).
85. Any other construction of section 2.2 is not appropriate under Delaware law. See
Axis Reinsurance Co. v. HLTH Corporation, 993 A.2d 1057, 1063 (Del. May 10, 2010) (“[T]he
controlling rule of construction is that where a contract provision lends itself to two interpretations,
a court will not adopt the interpretation that leads to unreasonable results, but instead will adopt
the construction that is reasonable and that harmonizes the affected contract provisions.”).
86. Further, the non-exclusive license from Xinuos to the Debtors to “use” the
copyrights does not encompass the further right to license or sublicense other work. “Use” of a
copyright under the APA means the non-exclusive right to reproduce, distribute, or make
derivative works of the copyrighted Post-1995 code in the context of the Utah Litigation, Novell
Litigation and Red Hat and SUSE disputes—for example, as evidence in those cases of SCO’s
market success or the like. But this is the only right that was extended. See D.I. 1216-1, § 2.2.
87. In copyright jurisprudence, the right to “use” and “sublicense” are separate and
distinct rights. See e.g. Johnson v. Jones, 149 F.3d 494, 500 (6th Cir. 1998) (concluding that an
express written agreement for the use of copyrighted material—one that provides that the licensor
retains ownership of the copyright and restricts the use of the copyrighted work—points away from
the existence of an implied license); Bruce Kirby, Inc. v. LaserPerformance (Eur.) Ltd., 2016 U.S.
Dist. LEXIS 106839, at *17 (D. Conn. Aug. 12, 2016) (observing that license contained separate
rights to “use” and “sublicense” copyrights).
{01722159;v1 } 31
88. If Xinuos had granted a right to the Debtors to license or sublicense the Post-1995
copyrights to third parties, the parties would have had to state so explicitly. See In re BuildNet,
Inc., 2002 Bankr. LEXIS 1851, at *17-18 (Bankr. M.D.N.C. Sep. 20, 2002) (“Under the Copyright
Act, a licensee does not have the right to sublicense or assign unless expressly authorized.”);
Reynolds v. Hearst Communs., Inc., 2018 U.S. Dist. LEXIS 35453, at *6-7 (S.D.N.Y. Mar. 5,
2018) (“non-exclusive licenses . . . permit licensees to use the copyrighted material” and “[a] non-
exclusive licensee has no right to sell or to sublicense without express authorization.”)
89. It is also clear that the license to the Debtors to “use” the Post-1995 copyrights does
not mean that the Debtors were extended the right to grant further “licenses” or “sublicenses” to
any other party, because when the parties wanted to refer to extending licenses or sublicenses
through another party, they used those terms. Indeed, in the sentence immediately preceding the
non-exclusive “use” license from Xinuos to the Debtors, the parties referred specifically to a
separate “sublicense” to Novell-owned pre-1995 UNIX code, that was extended from Novell
through the Debtors to Xinuos, and even attached a detailed sublicense agreement at Exhibit C.
D.I. 1216-1, § 2.2; see also id. at 36-42 (Exhibit C, “Sublicense Agreement”).
90. If the parties had intended for Xinuos to grant back a right to the Debtors to extend
“licenses” or “sublicenses” to third parties, they would have explicitly used those terms to do so,
as they clearly knew how to deploy those terms and did so in an analogous context. The fact that
the parties chose to describe the Debtors license as a narrower license to “use” when they elsewhere
referred to rights to “license” and “sublicense” others indicates that “use” does not and cannot
mean the right to license or sublicense others. Williams Cos. v. Energy Transfer LP, 2020 Del.
Ch. LEXIS 229, at *29 n. 123 (Del. Ch. July 2, 2020) (“One principle of contract interpretation in
Delaware is that the use of different language in different sections of a contract suggests the
difference is intentional—i.e., the parties intended for the sections to have different meanings.”).
{01722159;v1 } 32
91. It is settled Delaware law that where parties know how to use a term to explicitly
grant a right, such as rights to “license” or “sublicense,” but instead employ a different term, the
contract must be interpreted not to include that right. See Textron v. Acument Global Technologies,
Inc., 108 A.3d 1208, 1220 (Del. Jan. 23, 2015) (Where one part of agreement explicitly provided
for particular division of rights and obligations, such division not applicable to other parts of
agreement where that language was not used; “It was [] reasonable for the Superior Court to
assume that the lack of a similar provision . . . suggests [] the parties[’] . . . inten[t].”); Roseton OL,
LLC v. Dynegy Holdings, Inc., 2011 Del. Ch. LEXIS 113, at *41 (Del. Ch. July 29, 2011) (same;
“[W]hen the parties intended to make a particular restriction applicable . . . they knew how to do
so and readily could accomplish that objective.”); In re Verizon Ins. Coverage Appeals, 222 A.3d
566, 578 (Del. 2019) (“referring to [particular rights] elsewhere in the . . . policy demonstrates that
the parties knew how to expressly provide for [those rights] when that was intended”).
92. Thus, this general principle of contract interpretation has been applied in the context
of software copyright licenses. See e.g. Shugrue v. Cont'l Airlines, Inc., 977 F. Supp. 280, 286
(S.D.N.Y. 1997) (refusing to interpret agreement to include a particular copyright license term
where party knew how to use a particular term but did not do so; “when [party] wanted to transfer
only a license and when it wanted to retain rights to software, it knew how to do so.”); Mgmt. Sys.
Assocs., Inc. v. McDonnell Douglas Corp., 762 F.2d 1161, 1172-73 (4th Cir. 1985) (when parties
wanted to grant “perpetual” license in some parts of agreement, but that term was not used to other
parts, license was not perpetual where that term was not used)
93. “A copyright license must be interpreted narrowly” and “copyright licenses are
presumed to prohibit any use not authorized.” PlayMedia Sys. v. Am. Online, Inc., 171 F. Supp.
2d 1094, 1099 (C.D. Cal. 2001) (citing Apple Computer, Inc. v. Microsoft Corp., 759 F. Supp.
1444, 1451 (N.D. Col. 1991)). Thus, courts cannot insert terms in copyright licenses that do not
{01722159;v1 } 33
exist. See Fantastic Fakes, Inc. v. Pickwick Int'l, Inc., 661 F.2d 479, 482-83 (5th Cir. 1981) (state
law rules of contract construction are not preempted by federal law; however, application of state
law to supply implied terms in copyright license would raise preemption question).
94. Thus, in view of all of the foregoing, it would be particularly inappropriate to
interpret the APA as granting any right to the Debtors to license or sublicense other works, given
that such rights are not stated (even though the parties knew how to state such rights), such rights
would make no sense in context, and any such interpretation would be contrary to the plain
meaning and overall purpose of the APA.
95. Accordingly, the APA must be construed not to extend any right to the Debtors to
license or sublicense the Post-1995 copyrights to IBM or any other third party.
The Motion Must Be Denied Because The Proposed Settlement Agreement Contains
Releases That Could Be Improperly Construed To Release IBM And Red Hat From
The Competition Claims
96. For three reasons, the Trustee also cannot release IBM or Red Hat from the
Competition Claims. First, the Competition Claims are, and always have been, Xinuos’ claims.
Second, if the Competition Claims are not third-party claims, then they were transferred to Xinuos
through the APA. And third, given that the APA was entered to protect global server operating
system customers, it is not plausible that the parties also granted IBM and Red Hat a license to
harm consumer welfare through the same legal instrument.
A. The Debtors Do Not Own The Competition Claims, And Thus The Trustee
Cannot Release The Competition Claims
97. The Trustee can only release the Debtors’ claims, and the Proposed Settlement
Agreement provides that the Trustee only intends to release the Debtors’ claims. See D.I. 1501-2
at 10 (stating that “the Trustee, for the Debtors” release IBM and Red Hat from certain claims).
98. The Motion must be denied because the Proposed Settlement Agreement may be
construed as releasing IBM and Red Hat from the Competition Claims even though the Debtors
{01722159;v1 } 34
do not own these claims.
1. The Competition Claims Are, And Have Always Been, Xinuos’ Claims
99. The Competition Claims are described in the Virgin Islands Litigation Complaint.
See Virgin Islands Litigation, D.I. 1. They are based on Xinuos’ allegations regarding IBM and
Red Hat’s unfair and anticompetitive behavior in the Unix/Linux server operating system market,
which violates the federal antitrust and Virgin Island competition laws. See id. ¶¶ 184-229.
100. Xinuos is able to bring these allegations because it has experienced this conduct
first-hand in the market for long after the APA was signed, and based on its own investigation into
these practices beginning in 2019. See Snyder Decl. ¶¶ 38-39.
101. The fact that Xinuos purchased SCO’s assets to become operational does not mean
that Xinuos’ activities that postdate the asset sale somehow retroactively becomes SCO’s as well,
in just the same way that Xinuos’ acquisition of SCO’s assets do not necessarily mean that Xinuos
is now liable for SCO’s debts that predate the purchase. See e.g., Berg Chilling Sys., Inc. v. Hull
Corp., 435 F.3d 455, 468 (3d Cir. 2006) (“Where one company sells or otherwise transfers all of
its assets to another company, the latter is not normally liable for the debts and liabilities of the
transferor.”); Polius v. Clark Equip. Co., 802 F.2d 75, 77 (3d Cir. 1986) (same). SCO and Xinuos
have never been the same entity, and the Competition Claims are decidedly related to experiences
that Xinuos had in the Unix/Linux server operating system market.
102. For example, Xinuos alleges that IBM and Red Hat have colluded to foreclose
market competitors from access to existing server operating system customers. See Virgin Islands
Litigation, D.I. 1 ¶¶ 90-96. Xinuos has been exposed to these practices and as a result has not been
able to gain customer traction with its core operating system products. Id. ¶¶ 138-49.
103. Similarly, Xinuos alleges that IBM and Red Hat have taken concerted steps to
exclude competitors, including Xinuos, from valuable business and technical resources that would
{01722159;v1 } 35
otherwise facilitate market growth and innovation and increase consumer welfare. Id. ¶¶ 97-103.
104. And Xinuos alleges that but-for the anticompetitive business practices, and IBM
and Red Hat’s decision to exclude OpenServer 10 and related products from access to technical
capabilities, OpenServer 10 would be more widely licensed by market consumers. Id. ¶¶ 125-37.
Notably for purposes here, Xinuos developed OpenServer 10 after 2011, and the underlying
technology was not created by SCO or its predecessors. See Snyder Decl. ¶ 37.
2. If The Court Determines That The Competition Claims Are Not Third-
Party Claims, Then They Were Acquired By Xinuos Through The APA
105. The outcome is no different if the Court concludes that the Competition Claims are
related to the Debtors, as the APA provides that claims of this type were acquired by Xinuos.
106. This is best understood through the text and structure of Schedule 2.1(c), sub-
provision (ix). See D.I. 1216-1, Schedule 2.1(c)(ix). Under Delaware law, both the text and the
“structure and relationship of the parts of a contract reveal the drafters’ intent.” JJS, Ltd. v.
Steelpoin CP Holdings, LLC, 2019 Del. Ch. LEXIS 1308, *13 (Del. CH. Oct. 11, 2019) (describing
the whole-text canon); Bobcat North America, LLC v. Inland Waste Holdings, LLC, 2019 Del.
Super. LEXIS 210, *24 (Del. Super. Ct. Apr. 26, 2019) (identifying “the only reasonable
interpretation” of a provision “give [certain] structural relationships and the plain language”).
107. Sub-provision (ix) has three parts, each with a broader exclusion of claims.
108. Specifically, part (A) excludes only SCO’s claims against Xinuos related to the
APA. See id., Schedule 2.1(c)(ix)(A). Part (B) excludes claims that are “pending or may be
asserted in the future” relating to IBM, Novell, and SUSE. See id., Schedule 2.1(c)(ix)(B). And
part (C) excludes “every claim of any nature whatsoever, known or unknown” relating to
allegations that Linux violates UNIX. See id., Schedule 2.1(c)(ix)(C).
109. Based on this construction of the structure of sub-provision (ix), the exclusion in
part (B) of claims relating to IBM, Novell, and SUSE is not as broad as the exclusion in part (C).
{01722159;v1 } 36
110. The text of the different parts of sub-provision (ix) can then elucidate how the
exclusion in part (B) is narrower than in part (C). See Tang Capital Partners, LP v. Norton, 2012
Del. Ch. LEXIS 161, *19 (Del. Ch. July 27 2012) (“The controlling indicator of [the parties’ intent]
is the plain meaning of the language used in the contract.”). For present purposes, it is sufficient
to solely note that while part (C) expressly states that “unknown” claims relating to allegations
that Linux violates UNIX are not part of the asset sale, the exclusion in part (B) does not refer to
unknown claims. See id., Schedule 2.1(c)(ix)(B), (C).
111. Under Delaware law, the decision to include the phrase “unknown” in part (C) and
to not include the same phrase in part (B) must be treated by the Court as intentional. See e.g.,
Impact Investments Colorado II v. Impact Holding, Inc., 2012 Del. Ch. LEXIS 215, *28 (Del. Ch.
Aug. 31, 2012) (“Delaware law will not create contract rights and obligations that were not part of
the original bargain . . . where . . . the contract could easily have been drafted to expressly provide
for them.”) (citation omitted); Gertrude L.Q. v. Stephen P.Q., 466 A.2d 1213, 1217 (Del. 1983)
(“Delaware follows the well-established principle that in construing a contract a court cannot in
effect rewrite it or supply omitted provisions.”); Williams Cos., 2020 Del. Ch. LEXIS 229, at *29
n. 123 (“[T]he use of different language in different sections of a contract suggests that the
difference is intentional—i.e., the parties intended for the sections to have different meanings.”).
112. Accordingly, based now on a construction of both the structure and text of sub-
provision (ix), the exclusion in part (B) of claims relating to IBM, Novell, and SUSE is narrower
than the exclusion in part (C) based at least on the fact that the exclusion in part (B) does not
include “unknown” claims. In other words, based on the text and structure of sub-provision (ix),
SCO did not exclude from the asset sale unknown claims against IBM, Novell, and SUSE.
113. The Competition Claims were not known to the parties to the APA. It was not until
many years later that these claims became known, after IBM and Red Hat had engaged in
{01722159;v1 } 37
anticompetitive activity and Xinuos experienced the impact, prompting Xinuos to complete its
own independent investigation leading to the identification and understanding of those activities.
See Snyder Decl. ¶ 37. Moreover, many of the facts that formed the basis for Xinuos’ causes of
action occurred after 2011. See id. And notably, not a single document related to the asset sale,
the Utah Litigation, the Novell Litigation, or the ancillary actions state or imply that there is a
concern with IBM and Red Hat’s joint anticompetitive practices or monopolization of the market.
114. Accordingly, the Competition Claims were unknown when the APA was signed,
and thus do not fall within part (B) of sub-provision (ix) of the list of the Excluded Assets. These
claims were thus acquired by Xinuos through the APA. See D.I. 1216-1, § 2.1(a) (stating that
Xinuos purchased “[a]ll of Seller’s right, title and interest in and to all of the assets of the Business,
except for the Excluded Assets”).
115. Finally, it is also worth stressing that sub-provision (ix) only excludes the “Seller’s
claims” from the asset sale. Id., Schedule 2.1(c)(ix) (emphasis added). And section 2.1(c) of the
APA states that the Excluded Assets “shall remain the property of Seller after Closing.” Id. §
21(c). This language would not make sense if SCO did not already own or otherwise possess the
claims at the time of the sale. See Cyber Holding LLC v. CyberCore Holding, Inc., 2916 Del. Ch.
LEXIS 38, *14 (Del. Ch. Feb. 26, 2012) (“courts should not aspire to an illogical interpretation”).
And it would not make sense for SCO to own or otherwise possess the Competition Claims at the
time of the sale when those claims had not yet accrued.
B. The Parties Intended To Protect Server Operating System Consumers, Not

To Permit Their Abuse By Antitrust Violators
116. The purpose of the APA was to transfer SCO’s assets to Xinuos so that a solvent
entity could protect existing server operating system customers from harmful business
interruptions. This principle was reinforced on several occasions during the hearing on the APA.
117. In the proffer for Mr. Comer, the Trustee’s counsel stated that “it’s critical for these
{01722159;v1 } 38
estates that the transaction before this Court goes forward without delay for the benefit of the
software business, the debtors’ employees, the debtors’ customers, including various governments
around the world, large financial institutions, large retailers, universities across the globe, and
many others.” D.I. 1249, 25:20-26:1.
118. And Mr. Broderick stated during his cross-examination that the failure to approve
the APA would be “pretty disastrous worldwide” because if the operating system business could
no longer operate, then “small, medium, large corporations, retail outlets, government agencies,
they [would be] up a creek for support. If something happens to their operating system, they’ve
got nobody to turn to.” Id., 65:13-25.
119. This effort to protect server operating system customers and the operating system
ecosystem is inconsistent with a construction of the APA that grants IBM and Red Hat a license
to violate the federal antitrust laws. See Snyder Decl. ¶¶ 33-35.
PRAYER
Xinuos respectfully requests that the Court disapprove the Motion and enter a judicial
declaration that the Trustee, on behalf of the Debtors, does not have the power to release the Post-
1995 Copyright Claims or the Competition Claims, both of which Xinuos owns, and to grant
Xinuos any such other relief to which it may be entitled. Xinuos respectfully requests that the
Court refuse to approve any proposed settlement agreement that in any way precludes Xinuos from
raising in court the Post-1995 Copyright Claims or Competition Claims.
-Signature Page to Follow-
{01722159;v1 } 39
Dated: September 9, 2021 ASHBY & GEDDES, P.A.
/s/ Ricardo Palacio

Ricardo Palacio (I.D. #3765)
500 Delaware Avenue, 8th Floor
P.O. Box 1150
Wilmington, Delaware 19899
Telephone: (302) 654-1888
Facsimile: (302) 654-2067
rpalacio@ashbygeddes.com
-and-
CROWELL & MORING

Gabriel M. Ramsey (admitted pro hac vice)
Kayvan M. Ghaffari (admitted pro hac vice)
Jacob Canter (admitted pro hac vice)
3 Embarcadero Center, 26th Floor
San Francisco, CA 94111
Telephone: (415) 986-2800
gramsey@crowell.com
kghaffari@crowell.com
jcanter@crowell.com
Counsel to Xinuous, Inc.
{01722159;v1 } 40

Objection of Xinuos, Inc. To Order Approving The Settlement and Release Agreement by and Between The Trustee and IBM

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Case 07-11337-BLS Doc 1509 Filed 09/09/21 Page 1 of 40

IN THE UNITED STATES BANKRUPTCY COURT

TSG GROUP, INC., et al. Case No. 07-11337 (BLS)

Debtors. Hearing Date: 9/22/21 at 1:00 p.m. (ET)

OBJECTION OF XINUOS, INC., TO THE MOTION OF CHAPTER 7 TRUSTEE FOR

“Motion”). In support of this Objection, Xinuos respectfully represents as follows:

See D.I. 1216-1:

Purchase Agreement (the “Post-1995 Copyright Claims”)

IBM cannot encompass these claims or otherwise impair Xinuos’ rights.

The UNIX Operating System

to its reliability and scalability. Id.

6. Some of SCO’s Post-1995 improvements occurred in connection with a joint

limitation, SCO developed “cross-architecture” functionality in connection with Project Monterey.

software applications from 32-bit environments to higher-powered 64-bit environments. Id.

Project Monterey in 2001 before the work was completed. Id.

The Utah Litigation – Pre-Novell Litigation Resolution

the Linux operating system ecosystem generally. Id.

The Novell Litigation

Novell Litigation, D.I. 96 (Second Amended Complaint) ¶¶ 89-95.

Motion for Judgment as a Matter of law); 878 (Final Judgment).

otherwise negative result for SCO.

The Utah Litigation – Post-Novell Litigation Resolution

IBM licensed such source code.” Utah Litigation, D.I. 1132 at 2.

claim, or any part of such claim. Id.

termination of these licenses.”).

Ancillary Actions Involving Red Hat And SUSE

of SCO’s bankruptcy petition. Id., D.I. 72.

of the International Chamber of Commerce’s International Court of Arbitration in Paris, France.

arbitration pending resolution of SCO’s bankruptcy petition. See D.I. 204.

The Present Bankruptcy Action – Introduction

The Present Bankruptcy Action – The Asset Purchase Agreement

purposes, the APA has four material parts.

Asset Purchase Agreement states that Xinuos:

Id. § 2.1(a)(i), (vi).

the Post-1995 copyrights, as part of the assigned intellectual property).

Snyder Decl. ¶ 29.

Excluded Assets include the following:

intentionally to reflect the foregoing Excluded Assets. See id. ¶ 29.

license or sublicense the post-September 19, 1995 copyrights or code.

be no operating assets left.” Id., 34:24-25.

Trustee, the urgency of the APA and a sale was explained:8

of the business that it was acquiring. See id.

Litigation as framed in the Second Amended Complaint.

11 to 7 is appropriate where there is a “substantial or continuous loss to or diminution of the estate

and absence of a reasonable likelihood of rehabilitation”) (citing 11 U.S.C. § 1112(b)(4)(A)).

49. Notably, as part of this motion, the Trustee stated as follows:

D.I. 1419, at 1-2.

The Virgin Islands Litigation

generally. See id. ¶ 37.

Virgin Islands anticompetition and unfair practices laws. Id.

apparently fell through. See id. 1483-85.

Xinuos filed in the Virgin Islands Litigation.

and exclusive right to pursue those claims.

any other party. Each reason is taken in turn.

infringed—i.e., the assignment includes the Post-1995 Copyright Claims.

any rights in those copyrights, or the Post-1995 Copyright Claims.

reasonable and that harmonizes the affected contract provisions.”).

Debtors’ estates against International Business Machines Corporation (“IBM”) in an action [ ]

particular political or business context in which they were adopted.”).

addressing the sale of an entire business.”).

market if it could not protect its own assets.

contractual language superfluous.”).

B. Well-Established Copyright Law Provides That Only The Legal Or Beneficial